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Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Learning Objectives
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Network Design Decisions
• Facility role
What role, what processes?
• Facility location
Where should facilities be located?
• Capacity allocation
How much capacity at each facility?
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Factors Influencing
Network Design Decisions
• Strategic factors
• Technological factors
• Macroeconomic factors
Tariffs and tax incentives
Exchange-rate and demand risk
Freight and fuel costs
• Political
Contd…
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Factors Influencing
Network Design Decisions
• Infrastructure factors
• Competitive factors
Positive externalities between firms
Locating to split the market
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Framework for Network Design Decisions
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Socio Economic Factors in Choice of
Facility Location
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Framework for Network Design Decisions
Figure 5-2
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Framework for Network Design Decisions
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Framework for Network Design Decisions
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Models for Facility Location and Capacity
Allocation
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Models for Facility Location and Capacity
Allocation
• Important information
Location of supply sources and markets
Location of potential facility sites
Demand forecast by market
Facility, labor, and material costs by site
Transportation costs between each pair of sites
Inventory costs by site and as a function of quantity
Sale price of product in different regions
Taxes and tariffs
Desired response time and other service factors
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Phase II: Network Optimization Models
Figure 5-3
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
n m
Min fi yi
n
c ij
xij
i1 j1
i1
subject to
x
i1
ij
D j for j 1,...,m
m
x ij K i y for i 1,...,n
j1
yi 0,1 for i 1,...,n, x ij 0
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-4
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-5
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-5
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Phase III: Gravity Location Models
Figure 5-6
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Gravity Location Model
Fn: Cost of shipping one unit for one mile between the facility
and either market or supply source n
2 2
dn ( n
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Gravity Location Model
Figure 5-7
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Gravity Location Model
Transportation Coordinates
Cost Quantity in
Sources/Markets $/Ton Mile (Fn) Tons (Dn) xn yn
Supply sources
Buffalo 0.90 500 700 1,200
Memphis 0.95 300 250 600
St. Louis 0.85 700 225 825
Markets
Atlanta 1.50 225 600 500
Boston 1.50 150 1,050 1,200
Jacksonville 1.50 250 800 300
Philadelphia 1.50 175 925 975
New York 1.50 300 1,000 1,080
k
Total transportation
cost
TC d n Dn Table 5-1
Fn
n1
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Gravity Location Model
Figure 5-8
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Gravity Location Model
Figure 5-8
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Gravity Location Model
k DFx k DFy
n n n
n n n
n1 dn n1 dn
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Phase IV: Network Optimization Models
Demand City
Production and Transportation
Cost
per Thousand Units (Thousand $) Monthly Monthly
Capacity Fixed Cost
(Thousand (Thousand
Supply City Atlanta Boston Chicago Denver Omaha Portland Units) K $) f
Baltimore 1,675 400 985 1,630 1,160 2,800 18 7,650
Cheyenne 1,460 1,940 970 100 495 1,200 24 3,500
Salt Lake 1,925 2,400 1,450 500 950 800 27 5,000
City
Memphis 380 1,355 543 1,045 665 2,321 22 4,100
Wichita 922 1,646 700 508 311 1,797 31 2,200
Monthly 10 8 14 6 7 11
demand
(thousand
units) Dj
Table 5-2
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Network Optimization Models
n m
Min cij xij
i 1 j 1 subject to
n
Dj for j 1,...,m
xij
i1
m
K i for i 1,...,n
xij
j 1
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Network Optimization Models
TelecomOne Baltimore 0 8 2
Memphis 10 0 12
Wichita 0 0 0
Cheyenne 6 7 0
Table 5-3
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
n m
Min f y
i i
c ij
xij
i1 n
j1
i1
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-9
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-10
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-10
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Plant Location Model
Figure 5-11
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Model with Single Sourcing
x ij
1 for j 1,...,m
i1
m
D x i ij
Ki 0,1
yi
j1
xij , yi
for i 1,...,n
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Model with Single Sourcing
Figure 5-12
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Capacitated Model with Single Sourcing
Open/
Closed Atlanta Boston Chicago Denver Omaha Portland
Baltimore Closed 0 0 0 0 0 0
Cheyenne Closed 0 0 0 0 0 0
Memphis Open 10 8 0 0 0 0
Wichita Open 0 0 14 0 7 0
Table 5-4
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Locating Plants and Warehouses
Simultaneously
Figure 5-13
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Locating Plants and Warehouses
Simultaneously
• Model inputs
m = Number of markets or demand points
n = Number of potential factory locations
l = Number of suppliers
t = Number of potential warehouse locations
Dj = Annual demand from customer j
Ki = Potential capacity of factory at site
i Sh = Supply capacity at supplier h
We = Potential warehouse capacity at site e
Fi = Fixed cost of locating a plant at site i
fe = Fixed cost of locating a warehouse at site e
chi = Cost of shipping one unit from supply source h to factory i
cie = Cost of producing and shipping one unit from factory i
to warehouse e
cej = Cost of shipping one unit from warehouse e to customer j
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Locating Plants and Warehouses
Simultaneously
Min Fi yi f e ye chi c ej
xej
xie
i1 e1 h1 i1 e1 j1
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Locating Plants and Warehouses
Simultaneously
subject to
n m
xhi Sh for h x ej
We ye for e 1,...,t
j1
1,...,l
i1
l t t
x hi
– 0 for i x ej
D j for j 1,...,m
1,...,n
x ie
h e1 e1
1
t
x Ki yi for i
ie
yi , ye 0,1, xej , xie , xhi
1,...,n 0
e1
n m
x ie
– 0 for e 1,...,t
x ej
i1 j1
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Accounting for Taxes, Tariffs, and
Customer Requirements
x ij
D j for j 1,...,m
i1
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Making Network Design Decisions in
Practice
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Summary of Learning Objectives
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra